Correlation Between New Generation and Arsenal Digital

Can any of the company-specific risk be diversified away by investing in both New Generation and Arsenal Digital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining New Generation and Arsenal Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New Generation Consumer and Arsenal Digital Holdings, you can compare the effects of market volatilities on New Generation and Arsenal Digital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in New Generation with a short position of Arsenal Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Generation and Arsenal Digital.

Diversification Opportunities for New Generation and Arsenal Digital

-0.02

Correlation Coefficient

New Generation  Arsenal Digital

Good diversification

The 3 months correlation between New and Arsenal is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding New Generation Consumer and Arsenal Digital Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arsenal Digital Holdings and New Generation is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on New Generation Consumer are associated (or correlated) with Arsenal Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arsenal Digital Holdings has no effect on the direction of New Generation i.e., New Generation and Arsenal Digital go up and down completely randomly.

Pair Corralation between New Generation and Arsenal Digital

Given the investment horizon of 90 days New Generation is expected to generate 6.12 times less return on investment than Arsenal Digital. But when comparing it to its historical volatility, New Generation Consumer is 2.27 times less risky than Arsenal Digital. It trades about 0.03 of its potential returns per unit of risk. Arsenal Digital Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9.90  in Arsenal Digital Holdings on September 5, 2024 and sell it today you would lose (2.80) from holding Arsenal Digital Holdings or give up 28.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

New Generation Consumer  vs.  Arsenal Digital Holdings

New Generation Consumer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Generation Consumer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, New Generation reported solid returns over the last few months and may actually be approaching a breakup point.

Arsenal Digital Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arsenal Digital Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Arsenal Digital demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Generation and Arsenal Digital

The main advantage of trading using opposite New Generation and Arsenal Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Generation position performs unexpectedly, Arsenal Digital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Arsenal Digital will offset losses from the drop in Arsenal Digital's long position.

The idea behind New Generation Consumer and Arsenal Digital Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.